UPDATE 1-UK house prices +1.2 pct mm in Oct - Halifax

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LONDON, Nov 3 (Reuters) - British house prices rose 1.2 percent in October, leaving the annual decline at its smallest in 1-1/2 years as a lack of supply and higher demand buoyed prices, mortgage lender Halifax said on Tuesday.

House prices were 1.5 percent down in October compared with a year ago, the smallest annual fall since March 2008. Halifax said it expected the annual price change to turn positive in the coming months.

In the three months to October compared with a year ago, prices were 4.7 percent lower -- the smallest fall on that measure since May 2008 -- leaving the average price of a home at 165,528 pounds ($269,500).

The Halifax data showed a stronger monthly increase than rival mortgage lender Nationwide, which said prices rose 0.4 percent last month. However, house prices on the Nationwide measure have now risen for six consecutive months compared to only four on Halifax's gauge.

Gilt futures slipped after the data which provided further evidence that Britain's economy is picking up after suffering its longest recession since World War Two.

But Halifax said such strong house price growth was unlikely to be sustained as there were signs that people were becoming more willing to put their homes up for sale.

"Clearly, it's an unusual market at the moment in so far as there has been a combination of strong demand but quite an acute shortage of property for sale that seems to have been driving prices up quite rapidly in the last few months," Halifax chief economist Martin Ellis said.

"We don't think that will be sustained. We think that people have been encouraged to put their properties on the market because it has improved and that will bring supply and demand back into a better balance, which will take off some of this upward pressure on prices."